‘I’ve never had a year so bad’: Prime Minister Modi’s big economic changes have hit India’s small businesses

Kanwarji Bhagirathmal usually has a rush of customers during Diwali, but this year, people are spending less.
MUST CREDIT: Washington Post photo by Vidhi Doshi

NEW DELHI – The sweets usually fly off the shelves during the Hindu festival of Diwali, but this year, only a handful of passersby stopped by. Idle employees waited around to take down orders while the neatly piled towers of shimmering confections waited for a customer.

Famed in Delhi’s Chandni Chowk market, Kanwarji Bhagirathmal is one of many small businesses in Delhi where sales have slowed. “This time last year, there was a rush of people standing in front of the shop,” said Rachit Gupta, who runs the sweet shop. “People who were spending 1,000 rupees ($15) last year are spending 600-700 now ($9-$11).”

In the past year, India’s economic performance has fallen short of expectations. The shock of major economic changes has caused panic and confusion, leaving some small businesses like Gupta’s with slower sales than in past years.

“If food is something people are willing to forgo, then I’m not sure what’s happening to others,” he said.

The downturn is especially bitter because of the promises Prime Minister Narendra Modi made when he came to power in 2014. Chiding his predecessor Manmohan Singh, an Oxford-educated economist who oversaw the economic liberalization of India in the 1990s, Modi presented himself as a financial genius who presided over the state of Gujarat throughout years of boom. He spoke of his own rise from a streetside tea seller as a personal economic miracle, promising jobs for the young and a new focus on manufacturing to take on neighboring China.

But Modi’s promises have gone unfulfilled. Growth slumped to a three-year low from April to June, just 5.7 percent. Job creation has stagnated, leaving millions without work.

In November 2016, Modi made a surprise announcement declaring 86 percent of India’s cash defunct, saying the process of replacing the country’s paper money, also known as demonetization, would do away with untaxed stacks of “black money.” Just afterward, the queues outside Gupta’s shop vanished entirely. “I didn’t see people coming for days,” he said.

In July, a new goods and services tax was introduced, but there has been confusion over its implementation. The tax replaced varied state taxes and consolidates India’s economy into a single market for the first time, and it resulted in a price hike for items and services. Gupta, like many traders in Chandni Chowk, still doesn’t know how much tax to charge. He said even his accountant didn’t know. “If the people at the top don’t know what’s happening,” he said, “then how will people lower down the ladder know what to do?”

“Everything was fine” until Modi’s economic changes kicked in, said Jayshree Sengupta, a senior fellow at the Observer Research Foundation. She said demonetization hurt India’s vast informal sector, which dealt primarily in cash, and was unmonitored and untaxed by the government. “Suddenly they lost cash flow, they had to wind up micro businesses and go back to their villages,” she said. “They haven’t come back.”

For small and medium firms, Sengupta said, the tax overhaul created a huge amount of paperwork. “Many people are not computer literate, they don’t know how to do online filing,” she said. “People are not selling in fear of having to do all this work.”

Sengupta said that Modi’s weakness was an unwillingness to take advice from trained economists. “He doesn’t consult,” she said.

Rachit Gupta says sales in his sweets shop have slowed for the first time since he took it over seven years ago. MUST CREDIT: Washington Post photo by Vidhi Doshi

Modi’s government has made efforts to lessen the negative effects of his overhaul on small businesses: A defunct economic advisory council was reconstituted, and the goods and services tax was lowered on some items including dried mango and yarn. In a speech in early October, Modi dismissed his critics.

“Do you think this is the first time that GDP growth rate has hit 5.7 percent?” he asked, addressing an audience from the Institute of Company Secretaries. “There are some people who enjoy spreading pessimism. It helps them sleep better.”

Surjit Bhalla, a part-time member of Modi’s economic advisory council, said it is too early to draw conclusions about how small businesses have weathered Modi’s changes. He said Modi has commissioned a survey that will contain strong indicators about how companies have fared, and he said it’s likely that the effects on employment and wages in the sector will be evident next year.

From Gupta’s perspective, people are not spending because the economic slump has disturbed them at a spiritual level. “There has been no mental peace this past year,” he said. “People are not calm in their minds.”

Kanwarji’s, named after Gupta’s great-great-great grandfather, Lala Kanwar Sain, has stood in the same spot since the mid 19th century. To the residents of Chandni Chowk, the establishment is a landmark in one of the busiest markets in Delhi. Sweets of all shapes and sizes, some covered with a thin silver foil, some studded with almonds and pistachios, surround Gupta’s staff. Passersby eye the stacks of sausage-shaped gulab jamuns soaked in sugar, Gupta’s specialty, as suppliers push past them, carrying boxes of ingredients on their heads.

But as the festive season of Diwali approaches, Kanwarji’s is struggling to cope with the drop in sales. “In the seven years since I’ve started running this place, I’ve never had a year so bad,” Gupta said.

A few doors down, a man who sells Indian wedding suits says sales have dropped to below half of last year’s. Across the street, an electric lights market is set up for Diwali, with blinking multicolored wires strung up for show. But no one is buying.

“It’s a very confused market,” said Vatsal Narula, 23, who was watching over his father’s lights shop. The new tax regime has hiked up the cost of their products. “They’re introducing everything too fast. They hadn’t even completed one thing properly, and they already started moving on to the next.”

Sengupta said India’s economy will likely survive the shocks of the overhaul but that Modi’s once-shining career is starting to tarnish. “India never collapses. Things will move on and come back to normal in some time,” he said.

But for the people of Chandni Chowk this year, the economic slump will have a marked impact on a festival that is India’s equivalent of Christmas. “People are saying it doesn’t feel like Diwali this year,” Narula said. “Very few are putting up lights. They’re spending the bare minimum.”

– Washington Post



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